Confidence in financial figures is surprisingly low. In a recent survey conducted in association with Accountancy Age we found two thirds (70%) were not fully confident in their reported VAT figures whilst 12% had “broad concerns”. So what’s causing this doubt over data?
Key issues are accuracy of digital record keeping and maintaining data integrity during the VAT returns process. Finance and tax teams have very little control over the quality of the source data they are given, with files coming from ERP and accountancy systems or tax packs via email. The data is then treated as trusted, may be worked on by various team members and subjected to numerous calculations, creating multiple opportunities for error.
Sift source data
The logical point at which to address dirty data is at the point of ingest. By automatically scanning source data it’s possible to detect and flag anomalies such as duplicates across multiple data sources which can then be flagged to the team who can decide to include/exclude this information.
The same error detection functionality can also be used to data cleanse during the Returns process itself. The system can detect any unexpected VAT rates in transaction data, helping to identify any that have been misattributed. It can also look to see if any transactions that fall outside the reporting period have been included by mistake plus it can look for other transactions that should be blocked/excluded such as transactions between VAT group entities.
But anomaly detection and error management is only half the story. To boost confidence in the figures it’s also necessary to look at reliability of the Returns process itself.
Many businesses use spreadsheet-based processes to generate the Return and this can make it difficult to ensure version control and identify who has made changes. Add broken macros and faulty formulas to the mix, and it’s easy to see how errors can occur. At this point it then becomes both complex and time consuming to retrace the mistake back to source.
Analyse to realise gains
Moving away from spreadsheet-based processes and using dedicated compliance software (that is also compliant with MTD digital links) can help reduce this risk of error as it allows you to track changes, see an audit trail of the entire process and removes the problem of relying on potentially incorrect formulas and macros. But you can gain yet further control over the Returns process by using data analytics.
Data analytics enables you to see your data and to carry out a number of checks and balances. It’s possible to compare current and historic submission data, for instance, allowing you to view period-on-period payments which can then reveal any unusual deviations. Data summaries can also be used to highlight potential inaccuracies within specific areas, allowing you to delve into specific areas such as manual adjustments, for further review.
Using data analytics in this way doesn’t just help boost confidence in the reliability of the Return, giving the finance or tax team more assurance that the submission is correct, it also significantly reduces the time devoted to reviewing it. The review process is often one of the most time intensive aspects of the whole exercise because, as mentioned earlier, any discrepancies need to be traced back and rectified.
Knowing your Return is accurate also provides peace of mind because you know the likelihood of HMRC querying it, and the prospect of an unexpected audit, are significantly reduced. If HMRC detects an error it will stop the 30 day clock which begins when you submit your Return, effectively delaying repayment if you are due one.
Suspending the process can be expensive for the business as it then needs to provide the necessary evidence or recalculate the Return. Penalties can also be issued for erroneous Returns with careless errors awarded a penalty of 30% of the potential revenue lost to HMRC (although this scales to 70% for deliberate and 100% for deliberate and concealed errors).
Insights to help with planning
There are also other benefits associated with the application of data analytics. Being able to slice and dice data provides the business with far greater insights into its financial position. Rather than the VAT Return being a mandatory burden, it then becomes a useful window into the cashflow of the business, and something you can turn to your advantage.
By comparing specific periods, you can see the day-to-day functioning of the business, create more accurate forecasts and carry out comparisons against projected liabilities. This in turn enables the finance or tax team to move from a retrospective ‘rear view mirror’ stance to a more forward looking one whereby more time can be devoted to tax planning.
An Indirect Tax software compliance platform, that also happens to be fully compliant with the HMRC MTD mandate, can provide you with error/anomaly detection to help cleanse data and analytics to help boost confidence in the reliability of the Return. To learn more about how AlphaVAT, our MTD compliance platform, can provide you with both these capabilities, contact us today at firstname.lastname@example.org or on 01784 777 700.